M&A Information Technology Best Practices

Chapter 14

M&A IT Architecture and Infrastructure

Developing and Delivering Transition Services Agreements

Olivier MayKevin Charles

In the M&A world, the following situation is a familiar one: a diversified corporation decides to exit a line of business. The rationale is generally sound; the business unit did not quite fit into the long-term strategy of the enterprise or was simply not meeting performance expectations. Typically, the buyer for this business unit falls into one of two categories: a financial buyer such as a private equity group, or a strategic buyer such as a corporation that seeks to buy a compatible line of business (it is important to note that different types of buyers typically have different operational requirements of the carved-out business during the transition period). In a divestiture situation, the close of the financial transaction, whether it's a carve-out, spin-off, or other, generally marks the beginning of a buyer-seller operational relationship. To this extent, the seller or parent company often finds itself in the business of providing services to the divested entity or “child.” Typically these new activities are known as transition services and are governed by what is referred to as a transition services agreement (TSA). (In some cases the child will also be required to provide limited services back to its former parent. Services that are provided from the child to the parent are referred to as reverse transition services.) How you manage and ...